Niche player AMD targets China market

Semiconductor company Advanced Micro Devices (AMD) is attempting to cling to its niche market in an industry dominated by Intel. Top AMD executives highlighted the company's commitment to China and Hong Kong by providing a 'roadmap' for its K5 processor that they said would be competitive across 70 per cent of Intel's Pentium-class processor market. They said AMD recently opened three offices in Shenzhen and was beginning construction of integrated circuit assembly in Suzhou. Stephen Zelencik, vice-president and chief marketing executive, said AMD's strength was its singularity of purpose. 'Our business is strictly silicon and integrated circuits,' he said. 'We have no hidden agendas. We do not have a commitment to manufacturing that requires us to build boxes, giving us an advantage in China where we would just like to bring in our silicon and keep prices down.' AMD, with US$2.5 billion in sales last year, is far behind Intel's $20 billion revenues. Gerald Lynch, vice-president of sales and marketing for Asia-Pacific and Japan, said Intel definitely drove the market. But he said there was still such growth potential in the industry that AMD would remain a significant player, particularly in the 'family PC' market which required less computing power than Intel's high-performance processors gave. One example, he said, was AMD's strong relationship with Acer in such product lines as the $500 basic computer. AMD, however, will probably always be behind Intel in terms of technological innovation, even with its introduction of the X6 chip and advances in its X5 technology. The company recently won an eight-year court battle to gain access to all of Intel's instruction sets for processing. Mr Zelencik said winning this battle had been the key to the success of AMD, but analysts said it also showed AMD's weakness. Dan Heyler, a senior industry analyst for research firm Dataquest, said the cross-licensing agreement moved AMD and Intel from an adversarial relationship to a more symbiotic one. 'Intel can move ahead with its technology and customers won't be left behind because they will have AMD to help them through that transitional period,' he said. Mr Heyler said Intel had stepped on to a treadmill market, where 'once you get on, you can't get off'. 'Intel has invested billions of dollars in factories and research and development to stay one step ahead of the competition,' he said. 'They have extended their lead and have been very successful. It is a matter of returning investment at each generation stage.' Peter Wolcott, director of marketing and business operations for Intel Asia-Pacific, said the company had a special price move in the middle of the third quarter that would allow it to skip its usual quarterly price-reduction reporting for the Pentium chip for the fourth quarter. 'Based on primary feedback from channels in the US and Europe and from OEMs [original equipment manufacturers], we have found quarterly price-reduction reports disruptive because they do not line up with peak selling seasons,' he said. 'The Pentium Pro is a business-targeted solution and we tried to introduce it at a price-point that we could move down as rapidly as possible. 'But infrequent price moves are also disruptive. We want to bring down the price-point to stay on a typical learning curve.' Intel reported last week that it expected third-quarter revenues, which will be officially reported on October 14, to be up 5 per cent or more from last quarter's $4.62 billion. Gross profit margins are expected to exceed close to 50 per cent. The company's stock shares have shot up since the report came out. Mr Heyler said Intel obviously drove the whole market and, therefore, controlled it. During times of semiconductor shortages, as was the case three years ago, he said Intel favoured large accounts to keep profitability margins fairly consistent. 'This means big PC companies have gotten bigger, but there has been a shake-out of smaller PC companies,' he said. Companies without the resources to turn over technology quickly in terms of time-to-market are left hanging. 'This is where AMD comes in,' Mr Heyler said. 'Companies that cannot get their products out on time turn to AMD.' The market has changed in the past year, however, and a surplus of chips has arisen, playing to AMD's advantage. Mr Zelencik said AMD was happy to maintain its No 2 status and to focus on niche areas such as telecommunications in emerging markets. 'Eighty per cent of intranet connections worldwide pass through AMD silicon,' he said. 'Ten per cent of the lines in China use semiconductors and 50 per cent of phone calls in Europe go through AMD. We think we can achieve that in China.'